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Treasury Department Issues Final Rules on Sureties Doing Business with the United States

Wednesday, October 22, 2014

The Fiscal Service of the U.S. Department of the Treasury has issued a final rule concerning surety companies doing business in the United States. SFAA and its members had submitted comments regarding the proposed regulation when it was issued in 2011. Treasury has stated that it is clarifying the existing regulations concerning the authority of an agency bond-approving official to decline acceptance of a bond from a surety company that is Treasury-certified. The revised regulations authorize agency officials the discretion to decline a bond from a Treasury-certified surety “for cause.” Treasury stated in the proposed rules provide that “for cause” is not specifically defined, but would be “primarily defined” as a surety failing to pay or satisfy an administratively final bond obligation that is due to the agency. The final rules state that the definition of “for cause” includes, but is not limited to, this circumstance. Agencies also may decline “for cause” so long as it is defined under existing regulations and the decision is consistent with the agencies’ authority.

Under the final rules, prior to declining a bond, an agency is required to give the surety company advanced written notice of the intent to decline the bond with the reasons or cause. The notice also must provide the surety with an opportunity to rebut the reasons or cause, as well as an opportunity to cure. SFAA commented on the proposed provisions, noting the lack of due process in the proposed rules. In response to our comments as well as the comments of its members, Treasury noted that the final rule offers the above-described procedures, including requiring notice, opportunities to cure, and by providing injunctive relief. Finally, the procedures for declining a bond must be established by regulations developed by each agency. The regulations are subject to existing rule adoption procedures that include notice and an opportunity to comment. The fact that the use of any declination process first requires an agency to implement regulations effectively forestalls an agency's ability to decline a bond in accordance with these Treasury regulations. The approach taken by Treasury (requiring that an agency implement regulations) may have been a way to allow those agencies that saw surety responsiveness as an issue to take action, and permit agencies that did not view surety responsiveness as an issue to proceed "business as usual.".

The Treasury regulations also amend existing provisions whereby an agency may submit a complaint to the Treasury Department to request that the surety’s certificate be revoked. Treasury states that the final rules clarify existing procedures for adjudicating complaints based on these bond obligations. SFAA also commented on the procedures outlined for revoking a certificate of authority, again noting the lack of due process and objecting to the potential consequences of the outlined procedures. In response, Treasury emphasized the regulations do offer several opportunities for the sureties to receive notice, respond, and demonstrate compliance.

SFAA is reviewing these final rules to determine their implication for its members and what, if any, further action is required. We will keep you apprised of this situation develops any further.